Under the 2014-2019 roadmap, Indonesias Ministry of State-owned Enterprises (SOEs) plans to cut the number of SOEs from 119 to 85 and restructure them into 15 sector-based holding companies to improve efficiency. Within healthcare sector, the government has re-initiated the merger plan of PT Kimia Farma Tbk and PT Indofarma Tbk. The government is now considering whether the merger,which actually has been planned since 2005,should be conducted prior to the establishment of holding company. At one side,the government believes that the merger will diminish business overlap between these two SOEs and catalyze growth through synergy. In spite of that, some concerns start to emerge around the plan, including disagreement among shareholders and the uncertain impact of JKN scheme to both companies, among others. Given the aforementioned issues, the purpose of this research is to analyze the feasibility of the merger and propose the most appropriate acquisition scheme. As for the methodology, the author uses PESTLE, SWOT and TOWS to perform qualitative analysis at the economy,industry and company level. For the quantitative analysis,the author performs firm valuation using Discounted Cash Flow(DCF) method to calculate the standalone and post-merger values of both firms. Eventually,theresultshowsthatthereisexpectedsynergythatcomesfromrevenueenhancementandcostsreductionwith total value of IDR 968,332,350,219 under base case scenario, IDR 361,754,014,000 under downside scenario, and IDR 1,274,420,797,608 under upside scenario. The best scheme for this merger will be PT Kimia Farma Tbk acquiring PT Indofarma Tbk using 100% stocks with 0.41 exchange ratio. Through this merger, the two companies will form a stronger and more efficient pharmaceutical SOE that can withstand competition in years to come.

1. Bank Indonesia. (2015). Indonesia economic report 2014. Retrieved from  https://goo.gl/xyrd0u
2. Bank Indonesia. (2016). Indonesia economic report 2015. Retrieved from   https://goo.gl/QnF0Iw
3. Business Monitor International. (2016). Indonesia pharmaceuticals and healthcare report. BMI Research, London, UK
4. Damodaran, A. (2001). Corporate finance: Theory and practice (2nd ed.). New York, NY: John Wiley & Sons, Inc.
5. Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. New York, NY: John Wiley & Sons, Inc.
6. Principles of managerial finance. New York, NY: Pearson Education.
7. Historical Data PT Indofarma Tbk. (n. d.). Retrieved from https://goo.gl/d3HNzv
8. Kearney, A. T. (2013). M&A deal evaluation: Challenging metrics myths. Retrieved from   https://goo.gl/S2ES2l
9. Lopacinska, K. (2016). The merger of Geely automobile and Volvo car corporation as an example of the expansion of Chinese capital in the automotive sector. International Journal of Business and Administrative Studies, 2(6), 162-172.
10. McKinsey Global Institute. (2012). The archipelago economy: Unleashing Indonesia’s potential. Retrieved from https://goo.gl/OK33qV
11. PT Indofarma Tbk. (2015). Annual report PT Indofarma Tbk.
12. PT Kimia Farma Tbk. (2015). Annual report PT Kimia Farma Tbk.
13. Ross, S. (2010). Corporate finance (9th ed.). New York, NY: McGraw Hill.
14. The Boston Consulting Group. (2013). Indonesia’s rising middle-class and affluent consumers. Retrieved from https://goo.gl/wK4KP
15. Wheelen, T. L. (2012). Strategic management and business policy: Towards global sustainability (13th ed.). New York, NY: Pearson Education.

Kusuma, R. (2017). Merger and acquisiton (M&A) analysis of Pt Kimia Farma Tbk and Pt Indofarma Tbk. International Journal of Business and Administrative Studies, 3(3), 84-91.